
Original illustration by Tse Yuet Ching.
Stuck in the Middle
Like other powers, the UK will have to define a balance between economic and political considerations in its relationship with China. That balance, at present, seems some way off.
Given the prolonged political nervous breakdown that the UK was experiencing even before COVID-19, it should come as no surprise that there are unanswered questions around the country’s current and future foreign policy. The prime minister came to power on the promise that Britain would escape the constraints of the European Union, consistently presented as bonds to be broken. That, he assured the electorate, would allow the UK to bestride the globe as an independent nation, free to conduct its own business according to its own interests and desires.
Among the promises dangled in front of the voters were two key future trading relationships — one with the United States, the other with China. One is still the world’s largest economy and historically the UK’s close strategic ally, the other the world’s second largest economy, with which the UK’s past relationships have been more complicated. The optimistic Brexiteer narrative favoured the promise of a flourishing trade with both that might somehow compensate for any losses in trade and investment caused by leaving Britain’s closest and largest trading relationship.
There is, of course, another way of looking at it: that by leaving an entity that was able to use its collective strength to defend member state interests, the United Kingdom has weakened its influence and its capacity to bargain. Furthermore, it has done so just as the two major powers on which its big bet was focused have entered a period of intense and increasingly hostile strategic competition. As it seeks to strike new relationships with both China and the United States, the UK is at risk of being able to please neither. As things stand, both are likely to seek to insist on preferential loyalty in exchange for favourable terms of trade and investment. Neither will happily brook an attachment to its rival.
The old certainties that have defined each relationship for decades are no longer reliable. British governments and the more traditionally minded British press are fond of invoking the “special relationship” between the USA and the UK as the unshakeable foundation of Britain’s claim to global status. Whilst there has certainly been a deep strategic foundation of shared intelligence and military dependence since WW2, it is unclear how much the current US president continues to value it. There is no evidence either that he plans to except the UK from his general insistence that relationships with smaller, weaker countries must serve the US interest, regardless of any third party conflicts that may be provoked. As the UK sails into these unknown waters with few reliable navigational aids and no fixed destination, some sections of British opinion regard China as a dangerous navigational hazard, while others still see it as the Promised Land.
It is clear that United Kingdom urgently needs a new foreign policy. The UK’s current goals for its relationship with China remain focused on reaching better terms for trade and investment, while its capacity to achieve these goals is diminished. At the same time, it is increasingly evident that geo-political complications have real consequences and cannot be ignored. Like other powers, the UK will have to define a balance between economic and political considerations in its relationship with China. That balance, at present, seems some way off.
Like other powers, the UK will have to define a balance between economic and political considerations in its relationship with China. That balance, at present, seems some way off.
The UK’s current intention is to leave the Single Market by December 2020 in order to be free to diverge from EU norms. This, in turn, leaves open a number of China-related questions. Will the UK continue to support the EU contention that Chinese state aid to its national champions distorts the terms of trade, to the detriment of its trading relationships? Will the UK be obliged to concede China’s long-held wish to be acknowledged as a market economy, despite the many distortions in China’s economy designed to favour its own firms as the price of advances in trade and investment conditions? And if it does, how will that affect negotiations with the United States, given the US stated intention to insert the equivalent of Article 32.10 of the USCMA – the Nafta clause dealing with agreements made with non-market economies – into all future trade agreements?
What view will the UK take of incoming Chinese foreign direct investment (FDI)? The UK has traditionally been among the world’s most open economies, but has not been immune from the EU’s wider concerns about predatory Chinese acquisition of advanced technologies. Now that these debates are visible at a national level, will the UK government be obliged to take a more defensive position over technology acquisitions? The UK will inevitably be handicapped in these reflections by the realities of scale. It is a market of some 60 million people. The EU is a market of 350 million consumers. There seems little reason to believe that China will grant special concessions to the UK that it would not grant to the US or the EU.
Imbalances and Gaps
There is certainly room for improvement in the UK’s economic relationship with China. Despite many trade missions and much positive spin, UK trade with China is both relatively small and heavily balanced in China’s favour. According to a February 2019 British Parliament research briefing, UK exports to China in 2017 were worth £22.3 billion, an eightfold increase over two decades; imports from China were £45.2 billion, representing a 10 fold increase in the same period, resulting in a trade deficit of -£22.9 billion. Overall, China accounted for just 3.6 percent of UK exports and 7.0 percent of all UK imports.

There are structural explanations for the trade imbalance: the UK has de-industrialised in favour of an economy heavily based on services, so in China’s industrial phase the UK had little to offer, unlike Germany which enjoys more balanced trade with China. The UK hoped for a future growth in services that would play to its strengths. But, although Britain has a small surplus with China on trade in services, trade in services remains under-developed: China accounted for only 1.2 per cent of the UK’s global export of services in 2018, and much of that was accounted for by Chinese students in UK universities.
To put these figures in perspective, the EU in 2018 accounted for 49.3 per cent of UK two-way trade, the United States for 14.6 per cent and China 5.3 per cent. Given the size of the Chinese economy, this can only be regarded as modest.

The gap between promise and reality has been a feature of the UK-China story for decades, despite a reasonably sustained investment in the political relationship. Britain recognised the PRC in January 1950, but relations dipped in the Cultural Revolution when PRC fomented riots against British colonial rule in Hong Kong and a Chinese mob attacked the British legation in Beijing. Things improved in 1972 when the Conservative prime minister Edward Heath upgraded the relationship to full diplomatic relations. When Heath visited China in 1974, he was already out of office, but Beijing gave him a big welcome nevertheless, in recognition of his role in restoring the damaged diplomatic relationship.
Under Heath’s successor, Margaret Thatcher, the UK and China negotiated the conditions under which Hong Kong would return to Chinese rule on the expiry of the New Territories lease in 1997. Despite Beijing’s steadily tightening grip on the former colony since the handover, the UK government has done little to defend the terms of that agreement. This passivity has been noted by many analysts as one of several signs that Britain is willing to sacrifice human rights to the promise of China business. It remains to be seen if China’s most recent move – to impose a security law on Hong Kong changes that equation.
Today, despite repeated calls for a strategic vision, the UK lacks a strategic approach to China and relations have been determined primarily by varying levels of caution or enthusiasm in successive British administrations.
Deng Xiaoping and Margaret Thatcher meet on September 24, 1984, to discuss the future of Hong Kong. Image by Brücke-0steuropa available at Wikimedia Commons under CC license.